Can you spell … Disintermediated?

8

That was the subject line of an email received this morning from a distributor.  The body of email had a link: http://creesolutions.com/Solutions/NoHassles.

Which started a thought process of:Cree Sells Direct

  • Is this really disintermediation when there are a number of lighting manufacturers who sell direct as the core of their business model? And some who sell direct when it is convenient?
  • Why do contractors and other end-users order direct from manufacturers? Are they always receiving a significant price discount? And realistically, how much of a price discount can there be on a lighting project given that distributor margins on lighting projects are typically significantly below average distributor margins? And I’m talking about real margin … excluding overages.
  • Do manufacturers want to carry these receivables?
  • Other than a few national chains (Graybar, Rexel), most distributors cannot (or do not) finance lighting projects. Do manufacturers really want to finance (and then have to collect) from contractors?
  • If a manufacturer sells direct as well as through distributors, should distributors be reconsidering which direct salespeople and lighting agents that they work with / conduct joint sales calls with / “partner” with?
  • There are a number of distributors who offer most, if not all, of these services with the one that is difficult for many, but offered by some, being installation services (which most distributors outsource to a contractor while some have an “arms length” relationship with an “in-house” installation group.)

What’s at risk? Consider that 20-25% of a distributor’s business (and sometimes up to 30% if they are a heavy contractor-oriented house) is lighting. If a significant percentage of that business “disappeared” … or effectively is disintermediated from the channel, what would happen (and it’s not unrealistic to consider this over the next 5-10 years (maybe 10-20)
given new selling models, decreased lighting profitability and the disappearance of lamps into lighting solutions.

Cree is not the only lighting manufacturer with a dual sales strategy (and it should be noted that the Cree and Cree Solutions websites are different.) With the plethora of LED lighting manufacturers, more are going this way or being channel agnostic … online, other distribution channels, electrical distribution, direct and more.

And our friends Bill Attardi, Attardi Marketing, and Chris Brown, Wiedenbach-Brown Co., have been engaging in an enlightening discussion on www.energywatchnews.com/blog. regarding the future of distribution in lighting. Perhaps distribution won’t rule?

So, some questions:

  • Given that lighting is one of the top 3 product categories for a distributor, what are your thoughts on LED lighting manufacturers’ go to market strategies?
  • As a distributor, does this make a difference in whom you would represent / sell? Or would you only sell them if 1) they were speced and 2) the lighting agent generated the order for you?
  • As a manufacturer, how do you approach this discussion with a distributor?

And let’s be fair, if distributors can’t do the job, then the manufacturer needs to go direct to secure the business for themselves.  Not all business may be appropriate, or “good”, business for a distributor.

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